The Latest on Social Security

Social Security payments are adjusted every year to keep up with inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers.

Benefits:

Those who sign up for Social Security before their full retirement age receive a reduced payment. Those who turn 62 in 2020 will wait until 66 and eight months to claim their full retirement benefit. In 2019, the full retirement age was set to 66 and 6 months. The full retirement age for people born in 1955 was 66 and two months; for everyone born between 1943 and 1954, it was 66. Full retirement age is set to increase by two months annually up to age 67.13

In 2020, benefits increase 1.6% for recipients, roughly half as much as beneficiaries received (2.8%)in 2019. Social Security benefits were increased by only 2.0 percent in January 2018 and by only 0.3 percent in 2017 (which was the last increase since 2015 when it rose 1.7%), following a 1.5% (Cost of Living Adjustment) COLA for 2014. Previous COLA adjustments have ranged from zero in 2010, 2011 and 2016 to 14.3 percent in 19801,2,9,15

Monthly Social Security payments will increase an average of $39 in 2019 to $1422 per month for a single retiree. Couples, on the other hand, will see their payments swell by an average of $108 to $2448 per month (up from $2340). The maximum monthly payment that a worker can get at full retirement age is $2861 in 2019. In 2018, this amount was set at $2788 per month. Back in 2015, a single retiree who claimed benefits at the full retirement age of 66 got a maximum monthly Social Security payment of $2,663. 1,2,9,10,11,12

Social Security’s retirement earnings test amounts have also risen in 2019.
What this means is that retirees who work and collect Social Security benefits at the same time can earn slightly more in 2019 than they could 2018 before part or all of their benefits are temporarily withheld. Beneficiaries who are younger than their full retirement age (i.e., age 62-66 and 5 months) can earn up to a limit of $17,640 in 2019. This is an increase of $600 from 2018. After the retiree earns the $17,640 limit they will lose a benefit dollar for every $3 earned above this limit. In 2015, the test amount was $15,720 and in 2014 the limit was $15,480. 13

The earning limit will grow by $1560 to $46,920 for those who will turn their retirement age in 2019, and the penalty decreases to a dollar withheld for every $3 earned above the limit, but this rule only applies to the money earned in the months prior to reaching retirement age. Those who reached full retirement age of 66 during 2015 withheld $1 of benefits for every $3 earned above $41,880. Once you reach full retirement age there is no penalty for working after claiming retirement benefits and your benefit will be recalculated to give you credit for any withheld earnings. 1,2,13

Trustee Projections:
The Social Security program’s costs are expected to exceed its income in 2019. This is the second time that this has happened since 1982, forcing the Federal Government to dip into the retirement system’s trust fund to pay benefits to participants. The program’s trustees issued a report saying that the program would have to dip into its trust fund in order to pay out everything that’s been promised. 14

Tax Considerations:

As always, part of your Social Security benefits may be taxed. This may happen if you exceed the program’s “combined income” threshold. (Combined income = adjusted gross income + non-taxable interest + 50% of Social Security benefits.)4

The Social Security wage base continues to climb. Workers who are not retired will contribute 6.2 percent of their earnings to Social Security up to $132,900 in 2019. In 2018, the threshold was $128,700. In 2015, the threshold was $118,500. 1,2,13

What about Social Security’s projected long-range shortfall?

Social Security projects that it can tap its combined trust funds of roughly $2.8 trillion to pay 100% of scheduled retirement benefits through 2033. Thanks to the aging of the baby boomers, however, it has begun paying out more than it takes in. Social Security’s trustees project annual cash flow deficits averaged $77 billion across 2014-18, which could subsequently increase over time. 5,6

How does Social Security fix that? The simple fix many legislators have suggested is to increase the full retirement age. The full retirement age for those turning 62 in 2018 was set to 66 and 4 months. The age that constitutes full retirement will continue to increase by 2 months each year until full retirement age is 67 years for everyone who was born in 1960 or later. A 2014 SSA report noted the potential savings that might result from these incremental adjustments. If the full retirement age was gradually raised to age 68 over the next six years, that would reduce the program’s present deficient by 15%. If full retirement age was gradually raised to age 69 across the next 12 years, Social Security’s long-term shortfall would be lowered by 35%. The boldest suggestion – swiftly taking the full retirement age up to 70 and denying seniors a chance to claim Social Security as an early retiree until age 64 – would reduce the program’s deficit by 48%. Of course, the social and economic effects of any of the proposed moves could be devastating for many retirees.1,7,13

Another suggestion would be to radically hike the Social Security wage base to expose 90% of earned wages to Social Security taxes; the SSA says that move could reduce the long-range Social Security deficit by 48%. Alternately or in conjunction, the payroll tax could be raised from 12.4%; taking it up to 15.5% could get rid of the long-range shortfall and possibly leave a surplus, the SSA estimates.7

Or, Social Security COLAs could be linked to price growth instead of average wage growth – that is, to the “chained” CPI rather than the regular Consumer Price Index. In their above-mentioned 2014 report (which contains 120 ideas for reforming the program), Social Security trustees posit that basing COLAs on chained CPI would cut the long-term deficit by 19%. The SSA says COLAs could be 0.3% smaller annually if they were based on the chained CPI, which assumes that consumers buy cheaper versions of certain goods and services in the face of rising prices. Senior advocates would prefer COLAs being linked to the experimental CPI-E, an index the Bureau of Labor Statistics uses to track spending patterns of retirees. The CPI-E tends to rise 0.2% faster than the regular Consumer Price Index.7,8

What if some of Social Security’s reserves were invested in equities rather than Treasuries? Some economists contend this could have nightmarish results, others praise the idea. The SSA notes that if 40% of the Social Security trust funds were directed into equities with an average inflation-adjusted return of 6.4% per year – as opposed to special-issue Treasuries with long-term, inflation-adjusted returns of 2.9% a year – Social Security’s long-range funding gap would decrease by 21%.7

How much retirement income do you have these days? With Social Security’s future still surrounded by questions, you may be thinking about where your retirement income will come from in the years ahead.

Disclaimer: The information presented here is intended as information only and is not intended to represent tax, legal, or investment advice. Financial products can differ based on state of residence, age and product selected. Many financial products such as annuities may contain surrender charges and/or restrictions on access to your funds. Optional lifetime income benefit riders are used to calculate lifetime payments only and are not available for cash surrender or in a death denefit unless specified in the annuity contract. In some annuity products, fees can apply when using an income rider. Guarantees are based on the financial strength and claims paying ability of the insurance company. Read all insurance contract disclosures carefully before making a purchase decision. Rates and returns mentioned on any program presented are subject to change without notice.